Drugmakers Head to High Court for Clarity on Patent-Sale Timing

Supreme Court ruling may have far-reaching impact on consumers, inventors

The Supreme Court’s interpretation of a single line in federal patent law could determine if drugmakers can strike confidential licensing deals well before seeking patents.

Helsinn Healthcare SA wants the high court to revive a dosing patent for the anti-nausea drug Aloxi, which was tossed out on a challenge by generic drugmaker Teva Pharmaceuticals Inc. The two sides will square off Dec. 4 in an oral argument at the court.

Helsinn had agreed to sell exclusive rights to the drug more than a year before applying for the patents, which under previous law would bar the patent. But Helsinn says Congress changed the rules with the 2011 America Invents Act to exclude confidential sales from triggering the what is known as the on-sale bar. Teva says the law did not have that effect and Helsinn’s stance would turn foundational patent law on its head.

Both sides agree the high court’s ruling will carry massive, far-reaching policy implications for consumers and innovators. Helsinn says if the justices uphold a U.S. Court of Appeals for the Federal Circuit ruling against it, it would hamper crucial collaboration among innovators. Teva said a reversal of the Federal Circuit would let inventors use confidential sales to delay applying for a patent, effectively extending exclusive rights well beyond the patent’s intended lifespan.

Patent attorneys told Bloomberg Law the case hinges on the court’s interpretation of the law’s language, which they say lacks clarity. A ruling for Helsinn would particularly impact inventions like pharmaceuticals that are difficult to duplicate, where an extra year of exclusivity can mean millions of dollars.

Defining a Phrase

Helsinn had entered a licensing agreement with MGI Pharma Inc. for the Aloxi drug in 2001 and filed for patents in 2003. When Helsinn sued Teva for infringement in 2011, a U.S. district court said Helsinn didn’t trigger the on-sale bar because it didn’t publicly disclose any details of the patent.

The Federal Circuit reversed the lower court and invalidated the patent, finding public disclosure wasn’t needed to trigger the bar.

Language in the 2011 law blocks a patent if an invention is “in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” The law also includes a one-year grace period for applying for a patent after the initial sale.

Rep. Lamar Smith (R-Texas), the lead House sponsor of the 2011 law, was among those who have argued in Supreme Court briefs that non-public sales were intentionally excluded from triggering the bar. They said the phrase “otherwise available to the public” places a public requirement on both “public use” and “on-sale.” They argued the change fit into a broader shifting of patent law from a first-to-invent system to a first-to-file one. It gave inventors incentive to file applications quickly, while bringing the U.S. patent system in line with the rest of the developed world, Helsinn’s supporters said.

But in its decision, the Federal Circuit declined to read “a foundational change in the theory of the statutory on-sale bar” into the phrase. Rep. Zoe Lofgren (D-Calif.) argued in her Supreme Court brief that legislative history actually hurts Helsinn’s case, because Congress rejected language clearly excluding secret sales in the 2011 law. The phrase expands, not limits, uses that trigger the bar, she said.

James H. Wallace, an intellectual property attorney for Wiley Rein LLP, told Bloomberg Law that Teva is “absolutely correct” that for two centuries, the on-sale bar included non-public sales. But Wallace said the 2011 law left room for debate on whether that remained true.

“The language in the statute is changed. It may not be clear as some of us would like it to be, but it is clearly changed,” Wallace said.

‘Devastating Effect’

A reversal by the Supreme Court in favor of Teva would spawn a wave of non-disclosure agreements, technology and public policy groups said. It would let companies protect inventions as trade secrets while delaying patent applications—and patent expiration dates.

The Massachusetts Biotechnology Council predicted “a particularly devastating effect” on “essential collaboration” in the drug development industry in its own Supreme Court brief. It said big public companies would hesitate to work with smaller ones to develop drugs, because required disclosure of deals would trigger the patent-filing shot-clock. Others said competition and the need to get a patent in a first-to-file system would stop any delay tactics.

But a brief from IEEE-USA, an arm of the Institute of Electrical and Electronics Engineers, Inc., said law and precedent have recognized an “experimental use” exception to the on-sale bar. Under the doctrine, even public experimentation and testing on an invention not ready for patenting don’t trigger the bar, the group said.

The Federal Circuit pointed to “overwhelming” evidence that Helsinn’s dosing innovation for its Aloxi drug had been ready for patenting in the 1990s. The initial, now-expired patent to use Aloxi’s active ingredient—palonosetron—to treat chemotherapy-induced nausea was granted to Syntex USA Inc. in 1993.

Intellectual property attorneys who spoke to Bloomberg Law were split about where the high court might come down.

Wallace said Teva’s policy concerns had more validity than Helsinn’s, but didn’t think the court would give them much weight.

Stephen Y. Chow of Hsuanyeh Law Group PC said the Supreme Court has an “overarching view” favoring competition and consumers, and therefore might rule in favor of Teva.

Gholz, meanwhile, didn’t predict an outcome, saying that during Supreme Court patent cases, “most patent attorneys run and cover their ears, and hope for the best.”